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King Corn Rules Wheat Prices

Texas AgriLife Extension Economist Steve Amosson’s description of corn as the “gorilla on the block” for grain prices illustrates how much wheat growers depend on what happens in the cornfield, at livestock feeding operations and at the fuel pump.

“Wheat prices are projected at about $7.85 for 2011-2012,” Amosson says. “I don’t think the price in the U.S. will come down because of corn.”

USDA projects that corn ending stocks will only be 672 million bushels, far below recent years. “It’s the tightest situation we’ve ever seen on feed grains,” Amosson says. “We’ll see more corn used for ethanol (than for livestock feeding).” This, he says, will likely lead to more wheat feeding.

“The U.S. is misreading wheat feed use,” Amosson says, pointing out that wheat prices are currently about 110% of corn prices, when the average price is about 140% of corn. “World wheat feeding is up about 30% the last five years. We could see 300 million bushels or more (of U.S. wheat) being fed. Still, corn prices will determine your wheat price.”

World wheat fundamentals continue to be impacted by foreign sales. Russia, which last year faced drought conditions that forced the country to stop most exports, recently sold some 240,000 metric tons of wheat to Egypt, notes Tom Fritz, market analyst for Rosenthal Collins Group. The southern plains and Ukraine need rain to encourage planting, while Argentina needs rain ahead of the upcoming harvest.

Kim Anderson, Oklahoma State University Extension crop marketing specialist, points out that drops in wheat prices may continue. “Since April 25Kansas City Board of Trade(KCBT) December wheat contract prices have been between $10.05 and $7.20,” he says. “The December contract price peaked on April 25 at $10.05. The December contract price remained between $9 and $10 until June 13. By July 1, the Dec. wheat contract price had declined to $7.22.

“After July 1, the December wheat contract price increased to $8.95, and then by the third week in September the December contract price was below $7.25. This was a roller coaster ride that took $2.80 off the market.”

Prices were down even harder the end of last week. KCBT December 2011 wheat futures closed down 36¢/bu. at $7.04 on Friday. That compared to about $9 in late August. Chicago Board of Trade (CBOT) December 2011 wheat closed below $6 after hitting $7.80 in late August.

Wheat basis levels across the central plains wheat producing areas read from 66¢ under futures in southern Oklahoma to close to $1 under in northern Nebraska and into the Dakotas, according to Kansas State University. This and other data indicates that wheat prices will remain volatile – just like corn prices.